A blog about economics, finance, business and corporate governance. My background is in economics, with degrees from Columbia and Johns Hopkins. A career in international development, equity capital markets and as a corporate finance chief and board member lead me to think about events in a different way--hence the blog's name.

Tuesday, May 14, 2013

Dell Reports "Weaker" Results: Right on Time

Just like clockwork in the continuing market manipulation which is the Dell buyout, the Wall Street Journal reports Dell is moving up its quarterly earnings report to this Thursday because, among other things,

"Dell now expects to report revenue of roughly $14 billion, and earnings of 20 cents a share, excluding some expenses, according to the person briefed on the financial results.The average of analyst estimates had called for Dell to post $13.5 billion in revenue, and earnings of 35 cents a share, excluding some items, according to FactSet Research Systems Inc"

So Dell's revenues are better than expected, while earnings are worse. The apologists say that Dell had to clear excess inventory and sacrificed profits to do so. Perhaps. Or, as academics Xu, Qian and Li found in their research,

"In particular, a number of papers find substantial improvement in ROA following buyouts in which the target managers and other insiders participate (management buyouts, or MBOs), and the authors attribute the improvement to the strong incentives for value-creation created by MBOs.However, part of the improvement in ROA may be explained by how earnings are reported both before and after the MBOs, as it has been well established that this process is subject to managerial discretion.If managers of a publicly listed firm plan to take the firm private, they have an incentive to undertake activities to temporarily deflate earnings before launching an MBO. With lower earnings before the MBO, the firm can display greater improvement in operating performance after the MBO once the earnings-reducing activities are halted. Moreover, lower pre-MBO earnings canlead to lower stock prices, enabling the buyout team to acquire the target ‘on the cheap’ if outside investors do not fully understand the nature of these activities."

The Southeastern Asset/Icahn group have been asked by the board to structure their ideas as an offer to buy up Dell's public securities. Meanwhile, the quality of this quarter's soon-to-be-reported earnings should be viewed with the appropriate skepticism